Explanation

This specific risk was not identified. The data in Item 20 for the past three years shows a stable system with no reported franchisee terminations, non-renewals, or cessations of business. While this stability is a positive indicator, the very small size of the franchise system (four units) means this data may not be statistically significant. High turnover in other systems can signal franchisee dissatisfaction, lack of profitability, or systemic problems.

Potential Mitigations

• You should still contact a representative sample of franchisees listed in Item 20 to discuss their experience and satisfaction with the system.
• A business advisor can help you analyze the Item 20 data in the context of the system's small size and its growth plans.
• It is prudent to have your accountant help you track franchisee turnover rates in future FDDs if you proceed.

Explanation

This risk was not identified in the FDD package. Item 20 data does not show a period of very rapid franchise sales or openings. Such growth, if not supported by a corresponding increase in the franchisor's support infrastructure, can strain their ability to provide adequate training, site selection assistance, and ongoing operational support to all franchisees. A franchisor expanding too quickly may not be able to meet its obligations to you.

Potential Mitigations

• Engaging a business advisor to evaluate the franchisor's stated growth plans against their current support staff and financial resources is a wise step.
• It is beneficial to ask current franchisees about the quality and timeliness of the support they receive.
• Your accountant can help review the franchisor's financial statements to assess if they have the capital to support future growth.

Explanation

This risk was not identified. The Neehee's concept is based on Indian street food, which is a broad and established culinary category rather than a narrow, fleeting trend. A fad-based business carries the risk that consumer interest will decline, potentially harming the long-term viability of your investment even if your contractual obligations to the franchisor remain for the full term.

Potential Mitigations

• A business advisor can help you research the long-term market trends for the specific industry and cuisine.
• It is wise to evaluate the franchisor's plans for menu innovation and concept evolution to ensure long-term relevance.
• Discussing the concept's resilience to economic shifts and changing consumer tastes with a financial advisor is a prudent measure.

Explanation

This risk was not identified. The executive team, primarily the Patel family, is disclosed in Item 2 as having operated a similar restaurant under an affiliate since 2006 and been with the franchisor since its inception. This suggests they have significant operational experience in the specific business concept. Inexperienced management can be a major risk, as it may lead to poor strategic decisions and inadequate franchisee support.

Potential Mitigations

• You should still verify the management's reputation by speaking with current franchisees and business partners.
• A business advisor can help you assess if the management team's experience is sufficient to support future system growth.
• It is beneficial to ask the franchisor directly about their strategic vision and plans for the franchise system.

Explanation

This risk was not identified in the FDD package. The franchisor, Nihi Franchising, Inc. (Nihi), appears to be a family-owned entity with no disclosure of a private equity firm parent. Private equity ownership can sometimes lead to a focus on short-term returns over the long-term health of the franchise system, potentially affecting franchisee support and costs. You should always understand the ultimate ownership structure of a franchisor.

Potential Mitigations

• It is always prudent to confirm the ownership structure of the franchisor with your attorney.
• A business advisor can help you research the reputation and track record of any controlling entity.
• Understanding the franchisor's long-term goals, whether family-run or corporate-owned, is a key part of due diligence.

Explanation

This risk was not identified. Item 1 of the FDD clearly states, "We have no parent company." It proceeds to disclose its affiliate relationships. Failure to disclose a parent company, especially one that guarantees the franchisor's obligations or is a key supplier, can hide significant risks related to the overall financial stability and control of the franchise system.

Potential Mitigations

• Your attorney should always verify the corporate structure disclosed in Item 1 and check for any undisclosed controlling entities.
• An accountant can help assess whether the financials of a disclosed parent company should have been included in the FDD for a complete picture.
• It is important to understand the full corporate family and how affiliate relationships may impact your business.

Explanation

This risk was not identified. Item 1 of the FDD states, "We have no predecessors." A predecessor is a company from which the franchisor acquired the business concept. If a franchisor has a predecessor, it is important to review that entity's history for any signs of trouble, such as litigation, bankruptcy, or high franchisee turnover, as these issues could potentially carry over to the new entity.

Potential Mitigations

• Your attorney should always confirm the accuracy of the predecessor disclosure in Item 1.
• If a predecessor is disclosed, a business advisor can help you research its history and reputation.
• When predecessors exist, speaking with long-term franchisees who operated under the previous ownership is a critical due diligence step.

Explanation

This risk was not identified. Item 3 states that "No litigation is required to be disclosed in this Item." A clean litigation history is a positive sign. A pattern of lawsuits, especially those initiated by franchisees alleging fraud or misrepresentation, or a high volume of suits brought by the franchisor against franchisees, can be a major red flag indicating systemic problems or a contentious relationship.

Potential Mitigations

• Your attorney can conduct an independent search of public records to verify that no material litigation has been omitted.
• It is wise to ask current franchisees about the nature of their relationship with the franchisor and if they are aware of any disputes.
• A business advisor can help you understand that a lack of litigation is positive but not a guarantee of a harmonious relationship.